Income taxes

Income taxes from continuing operations shown in the consolidated statements of operations are reconciled to amounts of tax that would have been payable (recoverable) from the application of the federal tax rate to pre-tax profit, as follows:



(Expressed in thousands)
	For the Years Ended December 31,
	2018					2017					2016
	Amount			Percentage		Amount			Percentage		Amount			Percentage
U.S. federal statutory income tax rate	$	9,419		21.0	%	$	6,907		35.0	%	$	(7,662	)	35.0	%
U.S. state and local income taxes, net of U.S. federal income tax benefits	3,144			7.0	%	1,430			7.2	%	(1,075		)	4.9	%
Unrecognized tax benefit	—			—	%	(9		)	—	%	(603		)	2.8	%
Valuation allowance	1,833			4.1	%	89			0.5	%	1,208			-5.5	%
Non-taxable income	(637		)	-1.4	%	(1,055		)	-5.3	%	(1,267		)	5.8	%
Provision to return adjustments	(326		)	-0.7	%	(1,277		)	-6.5	%	(4,167		)	19.0	%
Impact of the TCJA	—			—	%	(9,013		)	-45.7	%	—			—	%
Change in state and foreign tax rates	267			0.6	%	(353		)	-1.8	%	264			-1.2	%
Foreign tax rate differentials	112			0.2	%	974			4.9	%	143			-0.7	%
Excess tax benefits from share-based awards	(81		)	-0.2	%	(493		)	-2.5	%	—			—	%
Other non-deductible expenses	2,246			5.0	%	666			3.4	%	897			-4.1	%
Total income taxes	$	15,977		35.6	%	$	(2,134	)	-10.8	%	$	(12,262	)	56.0	%

Income taxes from continuing operations included in the consolidated statements of operations represent the following:



(Expressed in thousands)
	For the Years Ended December 31,
	2018		2017			2016
Current:
U.S. federal tax (benefit)	$	10,355	$	506		$	(15,433	)
State and local tax (benefit)	2,618		(1,326		)	(4,631		)
Non-U.S. operations	231		144			46
Total Current	13,204		(676		)	(20,018		)
Deferred:
U.S. federal tax (benefit)	395		(1,215		)	5,856
State and local tax	1,438		1,725			617
Non-U.S. operations	940		(1,968		)	1,283
Total Deferred	2,773		(1,458		)	7,756
Total	$	15,977	$	(2,134	)	$	(12,262	)

Loss before income taxes from continuing operations with respect to Non-U.S. operations was $4.0 million, $8.5 million and $965,000 for the years ended December 31, 2018, 2017 and 2016, respectively.

The effective income tax rate from continuing operations for the year ended December 31, 2018 was 35.6% compared with 10.8% (benefit) for the year ended December 31, 2017. The effective tax rate for the year ended December 31, 2018 benefited due to the Federal tax rate of 21% (versus 35% in prior years) as a result of the enactment of the TCJA in December 2017 offset by a detriment from the establishment of a valuation allowance for the deferred tax asset related to net operating losses of the Company's operations in Europe as well as larger non-deductible expenses related to items such as entertainment, fringe benefits, regulatory fines and penalties, and limitations around the deductibility of executive compensation under the TCJA. The effective income tax rate for the year ended December 31, 2017 was positively impacted by the estimated impact of the TCJA which resulted in a net discrete after-tax benefit of $9.0 million. The net discrete after-tax benefit was comprised of a benefit of $29.0 million related to the re-measurement of deferred tax liabilities offset by a detriment of $19.6 million related to the re-measurement of deferred tax assets as well as a detriment of $0.4 million related to miscellaneous nondeductible items.

Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when such differences are expected to reverse. Significant components of the Company's deferred tax assets and liabilities from continuing operations as of December 31, 2018 and 2017 were as follows:



(Expressed in thousands)
	As of December 31,
	2018			2017
Deferred tax assets:
Deferred compensation	$	18,909		$	19,105
Deferred rent and lease incentives	9,597			10,303
Net operating losses and credits	7,071			10,535
Receivable reserves	2,350			2,663
Accrued expenses	2,863			1,104
Auction rate securities reserves	1,007			540
Involuntary conversion	1,692			1,670
Depreciation	370			500
Other	1,067			1,177
Total deferred tax assets	44,926			47,597
Valuation allowance	3,204			1,350
Deferred tax assets after valuation allowance	41,722			46,247
Deferred tax liabilities:
Goodwill	41,049			40,534
Partnership investments	8,227			9,184
Company-owned life insurance	6,277			7,426
Other	252			195
Total deferred tax liabilities	55,805			57,339
Deferred tax liabilities, net	$	(14,083	)	$	(11,092	)

The Company has deferred tax assets at December 31, 2018 of $2.5 million arising from net operating losses incurred by Oppenheimer Israel (OPCO) Ltd. The Company believes that realization of the deferred tax assets is more likely than not based on expectations of future taxable income in Israel. These net operating losses carry forward indefinitely and are not subject to expiration, provided that these subsidiaries and their underlying businesses continue operating normally (as is anticipated). During the year ended December 31, 2018, the Company recorded a valuation allowance of $1.8 million against the deferred tax asset related to the net operating losses incurred by Oppenheimer Europe Ltd.

Goodwill arising from the acquisitions of Josephthal Group Inc. and the Oppenheimer Divisions is being amortized for tax purposes on a straight-line basis over 15 years. The difference between book and tax is recorded as a deferred tax liability. As of December 31, 2017, the 15 year amortization period ended.

The Company or one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction and in various states and foreign jurisdictions. The Company has closed tax years through 2014 in the U.S. federal jurisdiction.

The Company is under examination in various states in which the Company has significant business operations. The Company has closed tax years through 2010 for New York State and is currently under exam for the 2011 to 2014 tax years. The Company also has closed tax years through 2008 with New York City and is currently under exam for the 2009 to 2012 tax years. With the exception of New York State and City, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2015.

The Company has unrecognized tax benefits of $1.1 million, $1.1 million and $1.1 million as of December 31, 2018, 2017 and 2016, respectively, from continuing operations (as shown on the table below). Included in the balance of unrecognized tax benefits as of December 31, 2018 and 2017 are $853,000 and $853,000 of tax benefits for either year that, if recognized, would affect the effective tax rate.

During the year ended December 31, 2018, the Company did not record any changes in unrecognized tax benefit. The Company does not believe any unrecognized tax benefit will significantly increase or decrease within twelve months. A reconciliation of the beginning and ending amount of unrecognized tax benefit follows:



(Expressed in thousands)
	2018		2017			2016
Balance at beginning of year	$	1,079	$	1,088		$	2,490
Additions for tax positions of prior years	—		—			98
Lapse in statute of limitations	—		(9		)	(652		)
Settlements with taxing authorities	—		—			(848		)
Balance at end of year	$	1,079	$	1,079		$	1,088

In its consolidated statements of operations, the Company records interest and penalties accruing on unrecognized tax benefits in income (loss) before income taxes as interest expense and other expense, respectively. For the year ended December 31, 2018, the Company recorded tax-related interest expense of $113,000 in its consolidated statement of operations. For the year ended December 31, 2017, the Company recorded tax-related interest expense of $231,000 in its consolidated statement of operations. As of December 31, 2018 and 2017, the Company had an income tax-related interest payable of $345,000 and $232,000, respectively, on its consolidated balance sheets.